Labor Laws Involving Salary vs. Hourly Employees

In the United States, it is common practice to pay employees by the hour, rather than by the number of hours they work.

One of the most important things to know about labor laws is the difference between a Salary Employee and an Hourly Employee.

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Oct 1, 2020
Bookkeeping by Adam Hill

For example, your employer could have a policy stating that weekly hours over 50 are paid at a salaried exempt employee’s straight-time pay. This means you would receive your normal salary for 50 hours and the remaining 10 hours would be paid at your regular hourly rate. Workers who don’t receive proper wages or whose employers don’t pay mandated overtime can get assistance through the Wage and Hour Division of the U.S. However, some workers must resort to hiring an employment class action attorney to resolve matters.

Is a salary better than a wage?

Employers compensate employees either by paying them an hourly wage or an annual salary. While salaried employees earn regular paychecks, even if they work long days during busy periods, certain hourly wage-earning employees are eligible for overtime pay for hours worked beyond the standard 40-hour workweek.

The FLSA rules also mandate overtime pay for hourly employees at 1.5 times their regular hourly wage. Federal law says employees who work more than 40 hours a week are entitled to time-and-half pay for the extra hours. Some salaried employees, however, are exempt from the rule. If they work 50 hours a week, exempt employees get the same salary as if they work 30.

An employer can make salary based on the employee working a certain amount of hours for the week. However, salary generally cannot be reduced unless a permissible deduction applies. Per federal law, businesses have to pay hourly employees overtime for hours worked in excess of 40 hours per week. They can still require salaried employees to work as long as it takes to get the job done.

Some of the most common questions we receive cover the definition of an exempt employee under the Fair Labor Standards Act. The definition is important because an employer must pay overtime to employees who work more than 40 hours per week unless the employees meet that definition via certain tests regarding job duties and salary. Many salaried employees are considered to be exempt from overtime pay, meaning that if they work more than 40 hours in a week they will still receive only their salary. Hourly employees are subject to the federal minimum wage laws and, as of July 24, 2009, employers are required to pay the $7.25 minimum wage. Where the state-mandated minimum wage is different than the federal minimum wage, employers are obligated to pay the higher wage.

• Generally, executive, administrative, professional, computer and outside sales employees are exempt.
• FLSA rules for exempt are varied and complex; your employer must follow them precisely, as misclassification can cause you to wrongfully not receive overtime.
• If you are exempt from FLSA overtime pay provisions, your employer does not have to pay you overtime if you work 60 hours for the week.

Salaried employees generally receive a set amount of pay each pay period, which is not based on hours or days worked. A salaried exempt employee does not qualify for overtime, but a salaried non-exempt employee does.

Pros & Cons of Salaried Compensation

There’s no additional compensation for additional hours, so a demanding boss could easily keep you at work with additional tasks. The FLSA mandates payment of minimum wage, overtime pay for eligible employees, working hours and exempt classifications for workers according to their job titles, duties and responsibilities. Exempt classifications refer to whether employees are entitled to overtime pay.

Overtime calculations can also often be difficult to determine for salaried employees because they don’t have a standard per-hour pay rate. Their pay rate when converted to hourly could vary pay period to pay period.

If you are exempt from FLSA overtime pay provisions, your employer does not have to pay you overtime if you work 60 hours for the week. FLSA rules for exempt are varied and complex; your employer must follow them precisely, as misclassification can cause you to wrongfully not receive overtime. Generally, executive, administrative, professional, computer and outside sales employees are exempt.

Hourly vs. Salary Pay

An hourly employee working one full shift per week of overtime would make an extra $1,508 per year. Most businesses use a time tracking system that pays employees by the minute, so, if you receive hourly pay, you should be compensated if you need to stay at work late.

There’s an exception for tipped employees — employers are required to pay only $2.13, according to the federal rules. However, if a tipped employee’s average wage — including tips — falls below the $7.25 minimum, the employer has to make up the difference.

Salaried employees are paid their salary regardless of how many hours they work during a workweek. While hourly employees receive overtime pay at a rate of 1.5 times their hourly rate for working more than 40 hours in a week, many salaried employees receive nothing extra for working those additional hours.

Some of these employees must receive a weekly salary of at least $455, as of 2013. As a salaried exempt employee, your employer can pay you extra if he wants to. The extra pay may come in the form of a bonus, flat sum, straight-time or time-and-a-half pay or additional time off.

The distinction between exempt and non-exempt employees often is incorrectly assumed as a mere difference between salaried employees and hourly employees. When it comes time to expand the team, startup founders are often faced with the decision of whether to hire employees on a salary or hourly basis. Hourly employees, on the other hand, may make more or less in a given pay period based on the number of hours they’ve worked. Most exempt salaried employees do not receiveovertime pay.

If your company isn’t bringing in steady business or tends to be more seasonal, hourly workers may be a good option to consider. However, hourly employees are typically nonexempt from the FLSA, which means you owe them overtime pay. Salary Employees – A salary employee is an individual that is hired by a business to perform a job at a set salary amount (whether weekly, monthly, or annually). This employee is considered “exempt” by the Fair Labor Standards Act (FLSA), which means the individual is not entitled to overtime pay.{“@context”:”https://schema.org”,”@type”:”FAQPage”,”mainEntity”:[{“@type”:”Question”,”name”:”Do salary employees make more than hourly?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” Salary employees make more than hourly employees.”}},{“@type”:”Question”,”name”:”What constitutes salary vs hourly?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” Salary is a fixed amount of money that an employee receives for a specific period of time. Hourly is the amount of money an employee receives for each hour worked.”}},{“@type”:”Question”,”name”:”Is there a limit to how many hours a salaried employee can work?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” There is no limit to the number of hours a salaried employee can work.”}}]}

Frequently Asked Questions

Do salary employees make more than hourly?

Salary employees make more than hourly employees.

What constitutes salary vs hourly?

Salary is a fixed amount of money that an employee receives for a specific period of time. Hourly is the amount of money an employee receives for each hour worked.

Is there a limit to how many hours a salaried employee can work?

There is no limit to the number of hours a salaried employee can work.